Strong $A trims $3bn from mine tax revenue

The federal government’s ability to deliver on promises of a regional infrastructure fund, business tax cuts and superannuation reform is threatened by the impact of the rising dollar on expected revenue from the new mining tax.

Previously, the government linked its promised tax package and infrastructure fund to introduction of the minerals resource rent tax. But the Mid-Year Economic and Fiscal Outlook revealed that the rising dollar had cut more than $3 billion from MRRT revenue forecasts.

The government reduced the company tax cut from two percentage points to one after modifying the resources super profits tax. It also delayed the introduction of a 50 per cent tax discount for interest income – achieving $730 million in savings – to pay for promises made to regional independent MPs.

This week, Finance Minister
Penny Wong
said the government would not take decisions about critical long-term reforms on the basis of day-to-day movements in the dollar. “Our reforms remain fiscally responsible and consistent with our overall fiscal strategy, including returning the budget to surplus in 2012-13," she said.

The Australian Chamber of Commerce and Industry’s director of economics, Greg Evans, said the deficit exit strategy relied on an increase in tax revenue and there was scope to cut government spending to pay for the package.

“The company tax reductions and the accelerated write-off allowance for small business should proceed irrespective of the progress of the MRRT, as they have merit in their own right," Mr Evans said.

“If the MRRT is not implemented or if there is a shortfall in expected revenue then the government should implement expenditure savings to fund these tax changes, noting also that the initiatives are still two and three years away, which is ample time to identify areas of potential savings."

Australian Bankers Association chief executive
Steven Munchenberg
said the government should accelerate the promised phasing down of withholding tax on financial institutions if it was serious about ensuring bank competition. “Interest withholding tax is of particular interest to overseas banks because it prevents them building their businesses in Australia," he said.